Today, virtual and crypto-currencies, such as Bitcoin™, are gaining acceptance as viable mechanisms for performing purchase transactions and other financial services. The transfer of units of these virtual and crypto-currencies between owners, which is essential to the ultimate success of these virtual and crypto-currencies, relies on a robust blockchain ledger structure that, due to its public nature, redundant verification, and resistance to fraudulent activity, offers advantages over existing centralized server systems.
The main advantage of a distributed ledger is the public nature of its architecture that allows anyone in the public to review content of the ledger and verify ownerships. Its decentralized approach also makes the system fairly robust in comparison to centralized server systems by allowing multiple distributed networks to verify the contents of a single ledger. This allows for redundancy and renders falsification of ledgers nearly obsolete. Despite its many advantages, the use of distributed, blockchain based ledger systems has significant flaws for use in secure, high-risk systems.
For example, the lack of encryption of the ledger entries raises security concerns for transactions of a sensitive nature, or at least privacy concerns for members of the general public. Central authorities such as governments or banks have a duty to maintain privacy of various transactions. For example, how a previous owner of a product or account interacted with the product or account is private information that should not be available to future owners, let alone members of the public.
Scalability of blockchain is also a concern. Though standard computing devices may be able to process a large volume of transactions through the blockchain, searching for specific transactions for a specific address is not an easy task in a large distributed public ledger.
Therefore, there are technical challenges that must be overcome with using distributed ledger based asset tracking in sensitive or regulated environments where privacy is a concern or is required.